Challenger banks increase competition

Derin Clark

Challenger banks have been making headlines this week, with RCI Bank revealing it's just received its UK banking licence and OneSavings Bank announcing its planned merger with Charter Court.

All change

The fact that RCI Bank has been granted its UK banking licence means that, from today, the bank is covered by the Financial Services Compensation Scheme (FSCS), the UK's deposit guarantee scheme, whereas previously it was under FGDR/French regulation. This provides more peace of mind to savers as their deposits (of up to £85,000 per person per banking licence) are now protected by a UK scheme in the event of the bank's insolvency.

RCI Bank already holds a prominent position in our easy access Best Buys. Its online-only Freedom Savings Account pays a highly competitive variable rate of 1.42% yearly from a minimum investment of £100, with no restrictions on additions or withdrawals, and the latest news is set to propel its popularity even further.

Meanwhile, the proposed merger between OneSavings Bank and Charter Court is set to cause a storm in the finance industry, with it expected to create a £1.6bn competitor. Both banks currently focus on savings and specialist mortgages, with the merger good news for consumers, as it could lead to more competitive rates in the savings and mortgage charts.

Challenger boost

In recent years there has been a growing number of new banks entering the UK market, creating more choice for consumers and, arguably, better rates, particularly in the savings sector. Indeed, towards the end of last year the US banking giant Goldman Sachs entered the UK savings market, with its consumer brand Marcus by Goldman Sachs® offering an easy access saving rate of 1.50% AER that still dominates the Moneyfacts.co.uk Best Buy chart.

The growth of challengers has been in part down to the restrictions on finance providers entering the UK market being relaxed, which has seen a boom in challenger banks over the last decade. For consumers, this has created a more competitive market as challenger banks regularly top the Best Buys, typically offering the best rates and often far outperforming well-known high street banks. In addition to this, many Islamic banks have also been entering the UK market in recent years and making an impact by not only providing competitive expected profits on savings, but also offering savers with an ethical investment option.

What next?

Take a look at the best savings deals available and you'll soon see that the charts are dominated by challengers. There's nothing to fear from these new arrivals; they come with the same financial protection as their better-known counterparts, so could be the ideal choice for those seeking the highest possible rates. Find out more about challenger and Islamic banks, and check out our savings Best Buys to find the right deal for you.

Disclaimer

Information is correct as of the date of publication (shown at the top of this article). Any products featured may be withdrawn by their provider or changed at any time.

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